Israel’s foreign currency market in April 2016

Strengthening of the shekel against the dollar, alongside a mixed trend in the dollar worldwide.

In April, the shekel strengthened by about 0.1 percent against the dollar and by about 0.3 percent against the euro.

Against the currencies of Israel’s main trading partners, in terms of the nominal effective exchange rate of the shekel (i.e., the trade-weighted average shekel exchange rate against those currencies), the shekel weakened by about 0.1 percent in April.

Worldwide, the dollar was mixed against major currencies in April: the dollar strengthened by 0.6 percent against the Swiss franc and by 0.1 percent against the euro; in contrast, the dollar weakened by 1.1 percent against the British pound and by 3.7 percent against the Japanese yen.

2. Exchange Rate Volatility

A decline in actual volatility of the exchange rate, and an increase in implied volatility.

The standard deviation of changes in the shekel-dollar exchange rate, which represents its actual volatility, declined by about 1.3 percentage points in April, to 5.3 percent at the end of the month.

The average level of implied volatility in over the counter shekel-dollar options––an indication of expected exchange rate volatility––increased by about 0.3 percentage points, to 8.4 percent at the end of April.

The implied volatility in foreign exchange options in emerging markets declined, to an average of about 10.8 percent in April, compared with 11.0 percent in March. In contrast, the implied volatility in foreign exchange options in advanced economies increased to about 11.6 percent at the end of April, compared with 10.8 percent in March (Figure 4).

3. The Volume of Trade in the Foreign Currency Market

Average daily trading volume decreased, in parallel with a decrease in nonresidents’ relative share of total trading volume.

Total trading volume in foreign currency in April was about $136 billion, compared with about $165 billion in March.[1] Average daily trading volume decreased by about 9 percent, to about $7.2 billion.

The volume of trade in spot and forward transactions (conversions) was about $30 billion in April. Average daily trading volume in those transactions declined in April by about 7 percent compared with March.

The volume of trade in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $6 billion in April. The average daily trading volume in those options declined by about 10 percent in April compared with March, to about $309 million.

The trading volume of swap transactions was about $100 billion in April, compared with $121 billion in March. Average daily trading volume increased by about 9 percent from the previous month, to around $5.2 billion.

Nonresidents’ share of total trade (spot and forward transactions, options and swaps) decreased by about 0.8 percentage points, to about 33.4 percent at the end of April.

[1] It should be noted that due to the Passover holiday, which fell out in April, there were fewer trading hours than the previous month.